Banks to Take Over Playa Vista Ownership

An agreement to transfer ownership of the long-troubled Playa Vista commercial and residential development--where the DreamWorks SKG studio wants to build its home--into the hands of a deep-pocketed investment partnership was reached late Thursday and is expected to be announced today.

Real estate affiliates of New York investment banks Goldman Sachs & Co. and Morgan Stanley & Co. would initially become the majority owners, with 84% of the property, and a 16% chunk would be held by financial firm Oak Tree Capital Management. In all, the new owners have agreed to sink about $200 million into the project--about $100 million was spent earlier this year to buy out the project’s lenders.

Within four months, a group that includes Union Labor Life Insurance Co. and Los Angeles financier Gary Winnick’s Pacific Capital Group is expected to exercise an option to become an equal partner in the 84% stake with the investment banks in the 1,087-acre project near Marina del Rey.

Whether DreamWorks eventually locates its studio home at Playa Vista is still up in the air. Despite early hype surrounding the building of a new motion picture lot at the site, the studio founded by director Steven Spielberg, entertainment mogul David Geffen and studio executive Jeffrey Katzenberg has no formal commitment to locate at Playa Vista.

Numerous sticky issues still have to be worked out, including financing of the project. In recent weeks, a variety of scenarios have been floated, including one in which DreamWorks merely leases a studio complex at Playa Vista rather than own the operation as originally envisioned.

DreamWorks executive Andy Spahn, the studio’s point person on the project, said the company is waiting for the formal change of ownership before holding any serious discussions.

City officials have dangled an $85-million package of tax and permit credits as an incentive for DreamWorks to locate at the site. DreamWorks executives have said that they remain interested in Playa Vista but that any deal has to make economic sense.

They also have not ruled out going elsewhere if a deal can’t be struck. Playa Vista’s new owners have said the project can still be viable without DreamWorks, suggesting that they could still build a film and TV production complex there.

Under an early agreement, DreamWorks was to buy the land it needed for about $6 million, then develop its studio on its own. Sources close to the deal estimate that DreamWorks would have to sink from $50 million to $75 million of its own capital into the project if it wanted to own the studio itself, which may be an incentive to arrange a deal to just lease the lot.

The deal to be announced moves to the sidelines developer and owner Robert Maguire, whose financial troubles and bitter feud with DreamWorks have delayed the project, which was on track to break ground last year. Foreclosure proceedings were started on Playa Vista, and the property came within a shade of being seized. Maguire was partners with real estate giant JMB and relatives of late industrialist Howard Hughes, who built his famous Spruce Goose airplane at a hangar that still stands at the site.

The investment banks entered the picture last May, when they bought the bank debt on the property from a group of lenders led by Chase Manhattan Bank, giving them leverage to force Maguire to the table and hammer out the deal.

Sources said Maguire would have the chance to purchase up to 21% of the commercial portion of the project devoted to office development. Maguire, whose representatives could not reached, would not be involved in the residential part of the project or in any DreamWorks development.

Playa Vista is a former aerospace plant that developers have been unable to turn into another project. It is controversial among some local environmentalists, who argue that any development will harm nearby wetlands.